Business Law and Commercial Law - The Law of Torts – Negligence (Cont’d)
The Law of Torts – NEGLIGENCE (Cont’d)
Duty of care has been considered in relation to:
Negligent acts causing physical harm.
Negligent acts causing psychological harm.
Failure to act (or omissions).
Negligent acts causing pure economic loss.
Negligent statements causing pure economic loss.
Pure Economic Loss
Pure Economic Loss:
Financial loss not resulting from physical injury, mental harm, or property damage.
Duty of Care in Pure Economic Loss Cases:
More limited than for physical or property damage.
Cardozo J’s Indeterminacy Argument:
No duty if liability would involve:
An indeterminate amount of money
For an indeterminate period
To an indeterminate class of plaintiffs
Case Example: Ultramares Corp v Touche (1931)
Negligence Criteria - Four Step Process
Does the Defendant owe a duty of care towards the plaintiff?
If yes, has the Plaintiff suffered damage?
If yes, has the Defendant breached that duty of care?
Are there any defenses?
Establishing a Duty of Care
HCA – Five criteria to decide duty of care:
Reasonable Foreseeability.
Indeterminacy of liability.
The individual autonomy factor.
The vulnerability of risk.
Defendant’s knowledge of the risk and its magnitude.
Perre v Apand Pty Ltd
Caltex Oil v The Dredge "Willemstad"
Establishing a Duty of Care - Perre v Apand Pty Ltd
Duty of Care owed for the following reasons:
Clear that it was reasonably foreseeable that a loss might occur.
No risk of indeterminacy – finite number of plaintiffs within the relevant radius.
No interference with Apand’s commercial freedom/autonomy.
Perre was vulnerable and powerless to do anything.
Apand knew of the risk and its potential consequences.
Establishing a Duty of Care - Negligent Misrepresentation
Hedley Byrne v Heller and Partners UKHL (1964):
First time recognised an action for damages for negligent misrepresentation
Hedley Berne & Co (Advertiser)
Easy Power
National Provincial Bank
Heller and Partners
Easipower is “considered good for ordinary business engagements”.
Confidential- For private use and without responsibility on part of the bank
Decision:
A duty of care could arise in circumstances where a “special relationship” existed and clear reliance by the plaintiff.
“…if someone possessed of special skill or competence undertakes to apply that skill for the assistance of another who relies on such skill a duty of care will arise”
[the disclaimer saved Heller and Partners in this particular case]
Establishing a Duty of Care - MLC v Evatt 1968-HCA
Mutual Life Assurance (MLC) company
Negligent Advice by officer of MLC to policy holder (Evatt) enquiring as to financial stability of the subsidiary company.
On the basis of advice Evatt invested in the subsidiary.
Subsidiary collapsed
Evatt sued MLC for faulty advice.
Decision: There was a duty of care.
See Barwick CJ on the nature of the special relationship and when it arises:
Whenever a person gives information
Whether that information is actively sought or merely accepted by the other;
Upon a serious matter (especially a business matter) but not necessary for D to be in the business of giving advice or information;
The relationship of the parties arising out of the circumstances is such that the speaker realises or ought to realise that they are being trusted or relied upon
Particularly if they have access to information or expertise
It is reasonable in the circumstances for the other party to act upon that information
THEN: the speaker, choosing to give information and advice, comes under a duty to provide that information or advice with reasonable care
Establishing a Duty of Care - Shaddock v Paramatta City Council
PCC was asked by Shaddock, a developer, whether the land that it intended to acquire was affected by a road-widening proposal.
PCC advised - land not affected by a road-widening proposal, when in fact it was.
Shaddock claimed they suffered financial loss as a result of the PCC’s failure to disclose the information.
HCA - NO distinction between providing advice (as an auditor does) and ‘merely’ providing information because it was the kind of information that required ‘skill and competence’ that only the Council had. This was sufficient to create a ‘special relationship’.
Decision: there was a special relationship:
The advice given in respect of a serious or business matter;
The circumstances were such that the adviser should have realised s/he was being relied upon to give correct advice on which the plaintiff intended to act; & in the circumstances, it was reasonable for the plaintiff to have relied on the advice.
Establishing a Duty of Care - San Sebastian v Minister
Plaintiff purchased land-seeing the publication of a redevelopment plan of Woolloomooloo in Sydney- Encouraged private developer to construct high density office blocks.
Plan did not eventuate
Plaintiff sued for reduction in value of property.
A request for information or advice demonstrates reliance which is a key determinant to duty of care.
However, such a request is not essential and that the defendant volunteering information/advice can be liable for negligent misstatement.
Plaintiff could not succeed unless they could establish two things-
That the alleged representation was made to the plaintiff
That the representation was made with an intention to induce the plaintiff or class of members to which he/she belongs
Plaintiff unsuccessful- Authority made no specific representation to the plaintiff-no assumption of responsibility.
Establishing a Duty of Care (three party scenario) - Esanda v PMH
Where there are three parties in the transaction (e.g. auditor – gives advice to client – and third party acts) the duty of care is harder to establish
Issue: when is a DOC owed in these circumstances where P did not request the advice?
Ratio: All agreed that a DOC could not depend on the reasonable foreseeability test (of D v S). So what is the test?
Issue – whether reasonableness of reliance test laid down in MLC v Evatt could be satisfied where a third party party uses an audit statement for purposes such as investment
No- third party like Esanda could have done own its investigation before giving a loan or making an investment.
Decision – PMH owed no DOC to Esanda
Negligence Criteria - Four Step Process
Does the Defendant owe a duty of care towards the plaintiff?
If yes, has the Plaintiff suffered damage?
If yes, has the Defendant breached that duty of care?
Are there any defences?
HedleyBerne; MLC; Shaddock; San Sebastian; & Esanda
Step 2: Breach of the Duty of Care
Section 48(1) A person is not negligent in failing to take precautions against a risk of harm unless:
(a) The risk was foreseeable (that is, it is a risk of which the person knew or ought to have known); and
(b) The risk was not insignificant; and
(c) In the circumstances, a reasonable person in the person’s position would have taken those precautions
Section 48(2) – How would a reasonable person have responded
(1) The common law test in Rogers v Whitaker
(2) Standard of care for professionals – the ‘statutory tests
(I) The common law test in Rogers v Whitaker
For professionals and persons with special training or skills it has been accepted that the standard of care to be met by a person with special skill or competence is that of the ordinary person exercising and professing to have that special skill
The standard of care is determined by the court – not the professional body
Note: The Rogers v Whitaker test has been partly replaced by the reform legislation –
(II) Standard of care for professionals -the statutory tests [ss57-60] Wrongs Act:
s57 - professional means an individual practicing a profession
s58 - Standard of care is determined by
Reference to what could reasonably be expected of a person professing that skill (and not a greater level of skill)
Relevant circumstances as at the date of the alleged negligence and not a later date
Once Plaintiff proves that the Defendant (professional) has not exercised reasonable care - Defendant is liable unless he/she can satisfy peer professional opinion defence provided in s59
Note: The Rogers v Whitaker test has been partly replaced by the reform legislation –
Step 2: Breach of the Duty of Care - Peer Professional Opinion
The ‘peer professional opinion’ defence Wrongs Act s. 59
A professional does not incur liability if he or she acted in a manner that was widely accepted by peer professional opinion as competent professional practice
However court can overrule if the opinion is irrational
There may be differing opinions that are widely accepted on a matter –then- one or more (or all) opinions may be relied
Peer professional opinion does not need to be unanimous to be considered widely accepted
Wrongs Act s. 60
s. 59 does not apply where a professional is under a duty to give (failure to give) a warning or other information in respect of a risk or other matter to a person.
Case: Mules v Ferguson
Step 3: Damage – Causation and Remoteness
Same two requirements as for negligent acts.
Need to establish:
Causation
The defendant’s negligence must cause (or materially contribute to) the loss suffered by the plaintiff
[Wrongs Act s51(1)(a)]
[See Mules v Ferguson and Polsen v Harrison (No8) as an example – for the causation point too]
Remoteness
The damage must not be too remote from the defendant’s conduct – i.e. it must be reasonably foreseeable.
Step 4: Damage – Defences to Negligence claims
Contributory Negligence
Statutory ‘peer professional opinion defence’
Summary - The Tort of Negligence (Pure Economic Loss)
Duty of care
Negligent acts causing pure economic loss
Negligent statements causing pure economic loss
Breach of the Duty of Care
s 48 (1) & (2)
The common law test in Rogers v Whitaker
Standard of care for professionals -the statutory tests (ss 57- 60; Mules v Ferguson)
Damages
Causation
Remoteness
Defences
Contributory Negligence
Peer Professional defence